Fundraising: Equity, Debt and Capital Markets
Raising money is a transaction, and the same discipline applies: get the structure right before the negotiation, and know which approvals the route requires. Two of the three routes on this page changed materially in the last eighteen months, and the third has been tightened.
- Private equity and venture rounds, and the instruments available
- The external commercial borrowing framework as rewritten in February 2026
- Public markets: eligibility, and the two routes
- The tightened small and medium enterprise listing regime
- Minimum public offer and minimum public shareholding
Equity from private and institutional investors
The commercial variables in a private round are familiar: how much, at what valuation, on what instrument, with what governance attached. The Indian constraints on the instrument are less familiar and they bind early.
Where the investor is not resident in India, the instrument has to be an equity instrument as the Reserve Bank defines the term, and a convertible instrument counts only if it is fully and mandatorily convertible. The conversion price or formula must be fixed upfront at issue and the conversion price may never be below the fair value at issuance. The price itself must be certified by a chartered accountant, a registered merchant banker or a practising cost accountant. Those constraints rule out several instrument designs that are standard elsewhere, and they are easier to accommodate at term sheet stage than after.
The valuation that has to sit behind the round is covered on our valuation for fundraising, convertibles and ESOPs page, and the cap table and dilution arithmetic on our fundraising models page.
The Companies Act machinery sits underneath all of that. A preferential issue under section 62(1)(c) has to comply with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 and, where it is made by private placement, with section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. An offer may be made to no more than two hundred identified persons in aggregate during a financial year, counted separately for each kind of security, excluding qualified institutional buyers and employees receiving securities under an employee stock option scheme. The names must be identified by the board before the invitation goes out, and there is no right of renunciation. Exceeding the limit can turn the offer into a public offer whether or not any money was received.
The paperwork is prescribed rather than optional. The offer-cum-application letter is Form PAS-4, serially numbered and addressed to the identified offeree, sent within thirty days of that person being recorded for the offer, and the record of offers is kept in Form PAS-5. Neither is routinely filed with the Registrar before circulation, but both are statutory records. No advertisement, marketing campaign, media distribution or use of agents to tell the public about the offer is permitted. Subscription money must come through banking channels from the subscriber's own account, never in cash, must sit in a separate account with a scheduled bank, and cannot be touched until allotment has been made and the return of allotment filed. Until then it may be used only to refund subscribers.
| Requirement | Time limit |
|---|---|
| Allot the securities after receiving application money | 60 days |
| Refund the money if allotment is not completed | Within 15 days after expiry of the 60 days |
| Interest if the refund is not made in that window | 12 per cent a year, running from expiry of the 60th day |
| File the return of allotment in Form PAS-3 | Within 15 days of allotment |
| Complete a preferential allotment under Rule 13 | Within 12 months of the special resolution |
Sections 42 and 62 of the Companies Act, 2013 with Rule 13 and Rule 14. Confirmed by our subject matter expert on 17 September 2026. If the twelve months lapse, a fresh special resolution is needed, and a fresh private placement offer cannot ordinarily be made until the earlier one has been allotted, withdrawn or abandoned.
Who may give the valuation report is the part most often got wrong. For an unlisted company's preferential issue under Rule 13 the price may not be below the value determined by a registered valuer, registered under section 247 and the Companies (Registered Valuers and Valuation) Rules, 2017, and for shares and convertible securities the appropriate registration category is ordinarily securities or financial assets. Being a chartered accountant, a company secretary or a cost accountant is not enough on its own: the person also has to hold that registration. Non-cash consideration has to be valued by a registered valuer too. For convertible securities the resultant equity price may be fixed upfront at the time of the offer or later by a valuation report obtained within the prescribed period before the holder becomes entitled to apply, provided the company picks and discloses the method at the time of the original offer. A listed company follows the applicable pricing regulations instead and does not need a Rule 13 report merely to set the preferential issue price, though exchange control and income tax may still require a valuation, and may require a different valuer.
The external commercial borrowing framework, rewritten in February 2026
This is the change most likely to make older material wrong. The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notification FEMA 3(R)(5)/2026-RB, were dated 9 February 2026 and took effect on publication in the Gazette on 16 February 2026, amending the principal 2018 Regulations. The change is structural rather than a set of adjustments.
| What changed | The position now |
|---|---|
| Who may borrow | Any person resident in India other than an individual that is incorporated, established or registered. This replaces the eligible-borrower sector list, and it brings limited liability partnerships in |
| How much | The higher of one billion United States dollars of outstanding external commercial borrowing, or 300 per cent of net worth |
| Minimum average maturity | Generally three years, with a limited exception for the manufacturing sector |
| Currency | Foreign currency or Indian rupees |
| End use | A negative list in a new Regulation 3A, covering chit funds, real estate business and certain agricultural activity, with exceptions |
| Reporting | Forms ECB 1, Revised ECB 1 and ECB 2 |
Source: RBI notification FEMA 3(R)(5)/2026-RB, read 1 September 2026.
The cost side changed as much as the eligibility side, and it is a genuine liberalisation rather than a redrafting. For a borrowing governed by the revised framework from 16 February 2026, the former general all-in-cost ceiling linked to a benchmark plus a prescribed spread has been removed. The cost of borrowing must instead be consistent with prevailing market conditions and, where the lender is a related party, must be on an arm's length basis. Prepayment charges and penal interest are governed the same way, and the separate two per cent ceiling that used to apply to them has gone.
There is one exception and it matters. For an eligible borrowing with an average maturity of less than three years, the trade credit cost ceiling continues to apply, so it is not accurate to say every external commercial borrowing is now free of a spread ceiling. On a fixed rate loan inside that exception, the floating rate plus the spread derived from the corresponding swap must not exceed that ceiling. Cost of borrowing for this purpose takes in interest, fees, expenses, charges, guarantee fees and export credit agency charges, but not commitment fees or Indian statutory taxes. A borrowing whose loan registration number was obtained before 16 February 2026 stays substantively on the former framework, apart from the revised reporting.
Anything describing a sector-specific eligible borrower list, or a flat limit of 750 million United States dollars, is describing a framework that ended on 16 February 2026.
Eligibility for a main board listing, and the two routes
An issuer coming to the main board qualifies either on the profitability route or, failing that, through a book-built issue with a minimum institutional allocation.
| Route | What it requires |
|---|---|
| Regulation 6(1), the profitability route | Net tangible assets of at least 3 crore rupees in each of the preceding three full years, of which not more than 50 per cent in monetary assets, relaxed where the issue is an offer for sale; average pre-tax operating profit of at least 15 crore rupees over any three of the immediately preceding five years; and net worth of at least 1 crore rupees in each of the preceding three full years. A company that has changed its name must derive at least 50 per cent of revenue from the activity the new name indicates |
| Regulation 6(2), the alternative route | A book-built issue with at least 75 per cent of the net offer to the public allotted to qualified institutional buyers, with a full refund if that minimum is not achieved |
Source: the Securities and Exchange Board of India's own FAQs on the Issue of Capital and Disclosure Requirements Regulations, May 2025 edition, read 1 September 2026.
One question comes up on every listing conversation: can the offer document carry forecasts. The Regulations contain no general express prohibition on every forward-looking statement in an offer document. They do expressly prohibit publicity: regulation 60(1) bars public communications and publicity material issued during the prescribed offer period from containing projections, estimates or conjectures, or anything extraneous to the offer document. That is a publicity restriction rather than a rule about the document itself.
What keeps issuer forecasts out of the document is the structure of what the document must contain, plus what happens if it is wrong. Schedule VI prescribes principally historical financial information, restated financial statements, historical key performance indicators, trends, risks, business plans and the proposed deployment of proceeds. Forward-looking narrative is permitted: strategy, planned capacity, use of proceeds, identified future risks, and independently sourced industry forecasts where properly attributed, current and qualified. What Indian practice does not permit is the issuer turning that into a forecast of its own revenue, profit, margin or valuation, and such projections are not to be given selectively to analysts or investors during the regulated offer period either. An industry forecast and a management projection are different things and the distinction is the one to hold on to.
A cautionary statement does not buy a safe harbour here in the way it would in the United States. Section 34 of the Companies Act, 2013 imposes criminal liability where a prospectus contains an untrue or misleading statement, or an inclusion or omission likely to mislead; section 35 imposes civil liability for loss caused; and section 36 reaches a knowingly or recklessly false, deceptive or misleading statement, promise or forecast used to induce investment. Sections 447 and 448 may also apply. That, rather than a single prohibiting regulation, is why the document is built on history.
Tightened, and worth understanding before choosing it
The listing route for small and medium enterprises was reviewed and tightened by the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025, notification SEBI/LAD-NRO/GN/2025/233 dated 3 March 2025 and effective on its publication on 4 March 2025. The changes are substantial enough that anything written before them describes a materially easier regime.
| What the amendment set | The notified position |
|---|---|
| Size of the issuer | Post-issue paid-up capital must not exceed 25 crore rupees for an issue on the platform. This is a capital boundary, not a turnover limit, an enterprise value limit, or a cap on what may be raised |
| Operating performance | Earnings before interest, tax, depreciation and amortisation of at least 1 crore rupees in any two of the three preceding full financial years, taken from restated consolidated financial statements |
| Offer for sale | The aggregate offered by all selling shareholders may not exceed 20 per cent of the total issue size, and no one selling shareholder may offer more than 50 per cent of its own pre-issue holding on a fully diluted basis |
| General corporate purposes | The lower of 15 per cent of the amount being raised and 10 crore rupees, replacing the former 25 per cent ceiling for these issues |
| Application size | A minimum of two lots, replacing the former formulation of 1 lakh rupees. The money value therefore depends on the lot size and the issue price fixed for that issue and is not a fixed figure |
| Non-institutional allocation | One third of the category is reserved for applications above two lots and up to lots equivalent to an application value of 10 lakh rupees, and two thirds for applications above 10 lakh rupees, with the prescribed spillover between them |
| Public comment on the draft | The draft offer document stays open for public comments for at least 21 days |
| Reporting pre-issue transactions | Promoter, promoter group and disclosed pre-issue placement transactions during the specified period must be reported to the exchanges within 24 hours |
| Price band notice | The floor price or the price band must be announced at least two working days before the issue opens |
| Growing past the boundary | An issuer already listed on the platform may make a further issue taking its paid-up capital beyond 25 crore rupees without migrating first, provided it undertakes to comply with the listing obligations applicable to a main board company. It is not permission to do an initial issue above 25 crore rupees |
Confirmed row by row by our subject matter expert on 17 September 2026 against the notified amendment. Four figures on the earlier version of this page were corrected in that check.
Two restrictions in the same amendment carry no number and are easy to miss. Issue proceeds may not be used, directly or indirectly, to repay a loan from a promoter, a promoter group member or a related party. And an issuer with outstanding convertible securities, or with rights entitling a person to receive equity shares, is generally ineligible, subject to the specified employee scheme and conversion exceptions.
The notified amendment carries further conditions on promoter lock-in and on fund-raising for unidentified acquisitions. We have not confirmed those against the notified text and we are not going to state them here from a secondary source. They are in notification SEBI/LAD-NRO/GN/2025/233 of 3 March 2025, and if either bears on an issue you are planning, ask us and we will check it against the notification for your facts.
Minimum public offer and minimum public shareholding, both recast
The slabs governing how much of a company must be offered at listing, and how quickly public shareholding must reach twenty-five per cent afterwards, were reviewed by the Board in September 2025 and recast by the Securities Contracts (Regulation) Amendment Rules, 2026, notified by the Ministry of Finance as G.S.R. 184(E) dated 13 March 2026 and in force on publication that day. The rules substituted Rule 19(2)(b) of the 1957 Rules. The direction of travel is that very large issuers offer a smaller percentage at listing and have longer to reach the minimum public shareholding.
| Post-issue capital at the offer price | Minimum offered and allotted to the public | Time to reach 25 per cent public shareholding |
|---|---|---|
| Up to 1,600 crore rupees | At least 25 per cent | At listing |
| Above 1,600 crore and up to 4,000 crore rupees | The percentage equivalent in value to 400 crore rupees | Within 3 years |
| Above 4,000 crore and up to 50,000 crore rupees | At least 10 per cent | Within 3 years |
| Above 50,000 crore and up to 1 lakh crore rupees | The percentage equivalent in value to 1,000 crore rupees, and at least 8 per cent | Within 5 years |
| Above 1 lakh crore and up to 5 lakh crore rupees | The percentage equivalent in value to 6,250 crore rupees, and at least 2.75 per cent | The graduated rule below |
| Above 5 lakh crore rupees | The percentage equivalent in value to 15,000 crore rupees, and at least 1 per cent, offered and allotted. Notwithstanding that test, at least 2.5 per cent must be offered to the public | The graduated rule below |
Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 as substituted by G.S.R. 184(E) of 13 March 2026. Post-issue capital is calculated at the offer price, and the requirement applies to each class or kind of equity share or of debenture convertible into equity shares. Confirmed by our subject matter expert on 17 September 2026.
For both of the two highest bands the timetable is graduated rather than fixed. If public shareholding on listing is below fifteen per cent, it must reach at least fifteen per cent within five years of listing and twenty-five per cent within ten. If it is already fifteen per cent or more on listing, it must reach twenty-five per cent within five years.
Three points are worth carrying away, because each is a place the notified text differs from the board paper or from the way the rule is usually summarised. The band from 1 lakh crore to 5 lakh crore rupees carries 2.75 per cent, not the 2.5 per cent the Board proposed. The band from 50,000 crore to 1 lakh crore rupees has a five-year period and does not belong with the three-year bands below it. And in the top band the rule distinguishes between the minimum that must be offered and allotted and the separate overriding requirement that at least 2.5 per cent be offered, which is not the same as a minimum issue of 2.5 per cent. An applicant listing on a recognised stock exchange in an International Financial Services Centre is outside the six bands altogether: the special rule there remains a minimum public offer of ten per cent whatever the post-issue capital.
This only matters at the top of the market capitalisation range, but where it matters it decides the size of the issue, so it is not a detail to carry forward from an older note.
Questions about raising
Equity or debt?
Debt is cheaper and does not dilute, and it has to be serviced in periods when the business may not want to. Equity is expensive and patient. The question is usually not which but how much of each the cash flow can actually support under a downside case, which is a modelling question before it is a financing one.
Can a limited liability partnership borrow abroad?
Under the framework as amended in February 2026, eligible borrowers are defined as any resident that is not an individual and is incorporated, established or registered, which on its face includes limited liability partnerships. This is one of the substantive changes from the earlier sector-list regime.
How long before an initial public offering should preparation start?
Longer than the process itself. The eligibility tests look back three to five years, so the financial position that qualifies a company is largely determined before anyone starts preparing.
Where to go next
Transaction Advisory Services
Back to the main page: what we do on a deal, how an engagement is structured, and how to reach us.
Preparing for a Transaction: Structures and Approvals
The structuring choice made before anything else, and the approval map that follows from it. Share purchase, asset purchase, slump sale, scheme of arrangement and the fast-track route that got considerably wider in 2025.
Financial and Tax Due Diligence
Quality of earnings, normalised working capital, debt and debt-like items, and the tax exposures a buyer inherits. What a diligence report is, what it is not, and how findings move price and paper.
Buy Side and Sell Side Execution
Running the process: information, term sheet, definitive agreements, warranties and indemnities, conditions precedent, completion mechanics and the integration that starts on day one rather than after it.
Restructuring, Distressed Deals and Exits
Resolution outside insolvency under the Reserve Bank's 2025 directions, transactions under an extensively amended Insolvency and Bankruptcy Code, carve-outs, and the exit routes with their current tax treatment.
Send an enquiry
Tell us how much you need, what for, and over what period it has to be repaid or returned. The route usually follows from those three answers rather than from a preference.
Position as at 17 September 2026. Reviewed every six months.
This page is general information, not professional advice. Transaction law and transaction tax in India both moved substantially between September 2025 and April 2026. The fast-track merger route was widened, the external commercial borrowing framework was rewritten, the Reserve Bank replaced its stressed asset framework, the Insolvency and Bankruptcy Code was amended extensively, and the taxation of a share buyback changed for the second time in eighteen months. Every position on these pages was reviewed by a qualified professional in September 2026 and carries the date it was confirmed. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.